Rebirth

The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis.

Deng Accepted That There Were Limits to His Expertise

Changing China's Market Framework

China's Opacity Protected it from Crisis

Entrepreneurship Was a Key to China's Boom

John Bussey

Washington Bureau Chief, The Wall Street Journal

John Bussey is the Washington bureau chief of The Wall Street Journal. He is responsible for the team of reporters covering the nation's capital, foreign and domestic policy, regulation, and national politics. Bussey has worked for the Journal since 1983 in positions that included deputy managing editor, foreign editor, economics editor, Tokyo bureau chief and editor in chief of The Far Eastern Economic Review and The Wall Street Journal Asia.

In 2002, The Wall Street Journal was awarded a Pulitzer Prize for its coverage of the September 11, 2001, terrorist attack on the World Trade Center in New York, which was across the street from the Journal headquarters. Bussey wrote a front-page, first-person account of the attack that was part of the prizewinning package. During his tenure overseeing foreign coverage, the Journal won three Pulitzer Prizes for international reporting, the first in 1999 for coverage of Russia's financial crisis, the second in 2001 for coverage of China's dissident Falun Gong movement, and the third in 2007 for coverage of the social and environmental consequences of China's rapid economic growth.

In this particular instance, China’s opacity, lack of transparency, and lack of openness, worked to its advantage. These are banks that are, to this day, heavily controlled by the government. They might have foreign partners, some of them might have spun off shares, but they are basically still, and they certainly were back in '96-'97, dominated by national government policy. So, it was really not a betting against them, there was really not a breaking of the banks or of the currency. Now, the government did something else that turned out to be quite memorable for the rest of Asia, which was that in the face of these torrents working their way through the financial system, there was a temptation to devalue your currency as a way of continuing to be competitive in global markets through your exports. And China, for a lot of different reasons, did not do so. I think it was seen as a position of strength, or a move by China to try to forestall further devaluations that might have happened by other countries to remain competitive with China were it to have devalued. I think to a certain part, this was really just realpolitik. To alter the value of your currency is a traumatic event, particularly in economies with profoundly rickety financial systems. And, even today, China has a rickety financial system. And back in '96-'97, the shocks and aftershocks that it might have caused, and the dislocations in the banking system, or in the export market, if it were to have taken a sort of radical step with its currency, might have been highly counterproductive, so it chose not to. But that was seen as a bulwark in Asia and something that China got some good PR points for.